Enquest ends two year slump with rising profits and oil flow boom

Troubled North Sea oil explorer Enquest has drawn a line under a difficult two year downturn with better than expected profits for 2016 and a production boom expected in the year ahead.

Last year the downturn-hit explorer weathered one of the North Sea’s largest and most complex financial restructurings in a bid to survive a £2bn debt crunch expected by the summer.

At the same time Enquest has doggedly cut down its costs while working towards the start up of one of the North Sea’s largest heavy oilfield projects and grown its portfolio with a high-profile team-up with BP.

On a pre-tax basis, Enquest’s profits surged by a third to $237.1m, up from $173.9m in 2015 in large part due to higher production and lower costs. The company's share price climbed over 2pc in early trade to intra-day highs of 43.69p a share.

EnQuest cut capital expenditure below its down its $620m-to-$670m target range to $609.2m and reduced its unit operating cost to $24.6 a barrel, down from $29.70 in 2015.

The explorer’s costs could fall further with the start-up of its giant Kraken oilfield within the next few months. Including the new production its unit costs are expected to fall to between $21 a barrel to $25, the company said.

The Kraken field is on track to deliver first oil in the second quarter, which is set to boost its production to 45,000-51,000 barrels a day this year, from just under 40,000 barrels a day last year.

Enquest boss Amjad Bseisu said the start-up will move the company from a period of heavy capital investment into one focused on cash generation and cutting down debt.

“The key is Kraken. It should generate significant cashflows which we will use to pay down our debt,” Mr Bseisu said. He added that the company hopes to shrink its debt pile to between one to two times its adjusted earnings (Ebitda), meaning smaller projects are not off the table but it would draw the line at big project investments.

Enquest opened the new year with a deal to take a 25pc stake in BP’s aging Magnus oilfield, which it will also operate on behalf of the major.

Crucially for the heavily indebted company it was spared from stumping up $85m (£68m) in cash by funding the deal through future cashflow from its share of the project.

At the time Enquest boss Amjad Bseisu said the deal plays to its strengths in managing older oilfields in the North Sea basin would materially increase its reserves base.

Last year saw the company’s strongest ever production. Enquest turned out 39,751 barrels of oil a day last year, up 8.7pc from 2015, while its North Sea production climbed 11.3pc.